This month, the government presented
the national budget for the next fiscal year starting from July1 at a time when
it was facing serious security challenges due to its frontline position in the
United States-led war on terror. The country has increased its defense spending
by 15.3 percent to Rs.342.9 billion in the next fiscal year, compared with
Rs.296.07 billion allocated in the fiscal year of 2008/09. In her speech in the
National Assembly last week, Minister of State for Finance Hina Rabbani Khar
said that the country had incurred an economic cost of $35 billion in the war
against terror and it was also spending heavy amounts to get rid of militancy.
The country is unlikely to meet its budget deficit target with a weaker growth
and continuous government's spending on the fight against Taliban insurgents,
according to the local experts.

The country plans to meet the budget
deficit from external resources, mainly 'Friends of Pakistan' and money coming
for internally displaced persons (IDPs). Budget deficit at Rs722.5 billion is
estimated to be about 24 per cent higher than the current year's estimate of
Rs582 billion. As ratio of GDP, the budget deficit will slightly go up to 4.9
per cent against 4.3 per cent during the current year. The country is the
biggest recipient of US aid.

Pakistan has asked the International
Monetary Fund (IMF) for a $4 billion stand-by loan to finance the yawning budget
gap in the year 2009-10 in case multilateral donors fail to release the pledged
amount to Islamabad. The Advisor to Prime Minister on Finance, Shaukat Tarin,
said that in case of any delay in receipts of pledges from Friends of Democratic
Pakistan (FODP), the country has lined up commitment of $4 billion from the IMF.
'This facility is insurance, which can be used in case the assistance from the
multilateral donors or friendly countries delayed or does not arrive,' Tarin
told newsmen in the post-budget press conference. Last November, a $7.6 billion
bail-out by IMF saved Pakistan from a balance of payments crisis. Under IMF
scrutiny, the country has targeted an increase in its fiscal deficit to 4.9
percent of GDP for 2009/10, from 4.3 percent in 2008/09.

The US Senate Foreign Relations
Committee Tuesday unanimously passed Enhanced Partnership with Pakistan Act that
will authorize $1.5 billion a year for five years to the South Asian country,
which is currently building a campaign to defeat Taliban commander Baitullah
Mehsud in his South Waziristan stronghold. The key south Asian anti-terror ally
of US has paid heavy costs in terms of human lives and economic losses, for its
frontline role in war on terror.

The US Senate bill ó named for its
authors, Democrat John Kerry and Republican Richard Lugar - puts a focus on
economic development in nuclear armed Muslim country. The bill needs to be
reconciled afterward with a version approved last week in the House of
Representatives, which imposes more stringent conditions on the country to
verify it is helping defeat Islamic extremism. Chairman Senator John Kerry
stressed that it was timely that the US supported Pakistan's anti-militancy
drive as well as help look after the displaced people of Malakand in NWFP.

"This is a critical moment for
Pakistan," reported APP Kerry as saying. "Pakistan is taking a critical action
against the militants and the displacement of millions of people from Swat and
other north-western parts offer the US and Pakistan a moment to help relocate
them. It is all the more important to get the money moving at this moment."

The suicide attacks in the major towns
and cities of the nuclear-armed country has witnessed a phenomenal increase in
last two months, as Pakistan army launched a full-fledged military operation
against Taliban insurgents in the country's northwestern tribal and settled
areas. The country has witnessed more than 25 terror attacks since the military
campaign against insurgents began in the northwestern Swat Valley seven weeks
ago.

Critics say that the country has
already lost billions of dollars in US-led war on terror besides huge indirect
losses to the economy. United States has spent ten times more in Iraq than it
spent in Pakistan over the past seven years. Five-year long $7.5 billion aid
plan cannot meet the costs in terms of economic losses and collateral damage the
country would bear if it becomes real war theater in US-led war on Al-Qaeda. At
least 4,000 people have lost their lives in terrorist attacks in the country in
the past two years, according to the official sources. The country's economy is
virtually under attack from militants, who are perpetrating devastating acts of
terrorism aggravating the foreign investor's concerns.

Of the total defense allocation of
Rs343 billion, over Rs341.62 billion will go under the head of military defense
and Rs1.28 billion for defense administration. Over Rs115 billion has been
allocated for salaries, allowances and other employee-related expenses as
against the revised estimates of Rs99.15 billion in 2008-09. Rs92.21 billion has
been set aside for operating expenses, a slight increase over the revised
estimates of the 2008-09 budget. Rs107 billion has been allocated for physical
assets as against the revised estimate of Rs88.31 billion in 2008-09 while Rs27
billion has been earmarked for civil works.

"The intensification of war on terror
into settled areas, coupled with other domestic factors like political turmoil
and an unstable law and order situation, acute energy shortages, supply shocks,
augmented by external factors like worsening of international financial crisis
feeding into shrinkage of external demand and uncertainty about global
recession, tested the resilience of economic fundamentals, according to the
official Economic Survey for outgoing year.

A military operation is currently
underway against Islamist extremists in different areas of Malakand division in
NWFP. The government has declared Malakand division a calamity-hit area and
announced to write off all agricultural loans extended to farmers in the area.
About 126,000 people are daily fleeing fighting in northwest Pakistan in one of
the 'fastest major displacements' in recent years, according to the UN refugee
agency. The cash-strapped country direly needs huge resources to undertake a
three-step operation- relief, rehabilitation and reconstruction for the over two
million IDPs who fled from conflict areas of Swat, Buner and Mangura in Malakand
division. Presently, the government is preoccupied by the IDPs crisis and the
relief operations.